Job Growth Sags and Unemployment Jumps in December

January 04, 2008

January 4, 2008 (Jobs Byte)

by Dean Baker

Health care and restaurants accounted for 85.5 percent of job growth since September.  

The unemployment rate jumped by 0.3 percentage points to 5.0 percent in December, as employment growth virtually came to a halt. The 5.0 percent rate is the highest since November of 2005. However, the rate of increase was even more disturbing. This is the sharpest jump in the unemployment rate since a 0.3 pp rise in the wake of the September 11th attacks in 2001.

The rise in unemployment hit blacks and Hispanic workers especially hard, with both groups seeing a rise of 0.6 pp in their unemployment rates to 9.0 percent and 6.3 percent, respectively. There continues to be an unusual age pattern to employment trends. Employment for workers over age 55 rose modestly, while reportedly falling by 436,000 for workers under age 55. While this December decline is probably an anomaly, employment for workers under age 55 has fallen by 625,000 over the last year.

Other data in the household survey is consistent with the picture of labor market weakness. The share of unemployment attributable to people who voluntarily quit their jobs, a measure of workers’ confidence in the labor market, fell to 10.4 percent, the lowest level since October of 2004. There was an increase of 124,000 in the number of workers involuntarily employed part-time, the second consecutive large increase, and a 32 percent jump in the number of discouraged workers from year ago levels.

The establishment survey showed the economy creating just 18,000 jobs, with the private sector actually losing 13,000 jobs. This is the first reported drop in private sector employment since a decline of 11,000 in July of 2003. Over the last three months the economy has created an average of 97,000 jobs, with the private sector generating just 61,000 per month over this period.

Even this figure may prove to be somewhat overstated. The imputations of jobs for new firms have been running at a slightly higher rate than in 2006. The 2006 numbers were subsequently revised down by an average of 25,000 per month. If the 2007 job numbers are comparably overstated, then actual private sector job growth has been less than 40,000 per month over the last three months.

The construction and manufacturing sectors are the main forces pulling the economy down. Construction lost 49,000 jobs in December, bringing total job loss to 160,000 since June. It is striking that the job loss is showing up now in both residential and non-residential construction. Non-residential construction had been a major source of economic strength over the last year. The December data suggest that there may have been overbuilding and that contractors are now cutting back.

Manufacturing lost 31,000 jobs in December. It has lost 183,000 jobs, or 1.3 percent of total employment over the last year. Retail also had a bad month, shedding 24,300 jobs.

The health care and restaurant sectors continue to dominate employment growth, adding 27,900 and 26,600 jobs, respectively. Over the last three months these two sectors have accounted for 85.5 percent of private sector job growth. Local government employment has also been strong, adding 24,000 jobs in December and 89,000 over the last three months, 30.5 percent of total employment.

Wage growth continues to be moderate. The average hourly wage has grown at 3.3 percent annual rate over the quarter, which is almost certainly below the rate of inflation. In manufacturing, the hourly wage has risen at just a 0.8 percent annual rate over this period.

There is not much good news in this report. Both the household and establishment surveys show unambiguously bad pictures of the labor market. The rise in unemployment is too large to be an aberration. Also, there were no major weather events that could explain it away. The establishment survey is showing weakness in almost all sectors with health care, restaurants, and local government employment being the major exceptions. These three sectors will not support the economy, especially with many local governments now facing budget pressures as a result of the housing bust. The reported job loss in non-residential construction is especially worrying, since this sector may now also be major drag on the economy.  

Dean Baker is the Co-director of the Center for Economic and Policy Research.

CEPR’s Jobs Byte is published each month upon release of the Bureau of Labor Statistics’ employment report. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102, or morgavan [at] cepr [dot] net.

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